Special Economic Zones

Special Economic Zones

Special Economic Zones Advantages of SEZ Units SEZ and Export Promotion First SEZ Policy of India History of SEZs in India SEZs and Land Acquisition Pros and Cons of SEZ Policy Procedure of Setting Up SEZ SEZ Rules 2006 SEZ and Foreign Capital SEZ and Tax Incentives Features and Facilities

        of Indian SEZ

Special Economic Zones (SEZ)A Special Economic Zone (SEZ) is an ecological district that follows noninterventionist monetary guidelines which are different from the conventional economic norms of a country. SEZ envelops a wide array of zones incorporating Free Zones (FZ), Free Trade Zones (FTZ), Industrial Estates (IE), Export Processing Zones (EPZ), Free Ports, etc. Generally the objective of SEZ formation is to attract more foreign investment typically through an overseas business or a conglomerate.

Generally, SEZs are constructed by utilizing an array of institutional compositions varying from complete government owned organizations to privately owned firms. In some cases, the government owned organizations perform as quasi-government groups in which they follow a pseudo-corporate organization composition and have total control over their budget construction.

SEZs are also constructed under the tie-up of private and government organizations where the government sector offer assistance by introducing provisions on infrastructure, investment, issue of bonds & debentures, etc. This enables the private industry to attain a considerable rate of return on the venture.

Importance of SEZ in India

India has over 1022 SEZ units currently under the structural formatting. It has more than 9 fully functional SEZs and over 7 Export Processing Zones (EPZs) which have been transformed into SEZs. Each entirely functional SEZs has a standard dimension of 200 acres and are spread in different parts of India.

The need for a Special Economic Zone was realized by India in April 2000 in order to augment the foreign direct investment in the nation, to trigger its exports revenues and to provide a global platform to local firms and manufacturers. Indian government has always been upbeat about the expansion of SEZs and to supplement their plans it has also introduced policies which are assessed

on quarterly basis. This ensures the supply of enough facilities to the SEZ developers along with the firms establishing their business units in it.

Important SEZs in India

Belgaum Aerospace SEZ Operational SEZ in Karnataka Chennai One in Thoraipakkam, Chennai ETA Technopark in Navalur, Chennai Falta in West Bengal Kensington in Powai, Mumbai Mahindra World City in Chennai and Jaipur MARG Swarnabhoomi in Tamil Nadu MIHAN in Pune SEEPZ in Mumbai Greater NOIDA in Uttar Pradesh Pharma and Biotech SEZ in Aurangabad, Maharashtra

Special Economic Zones in India were established in an attempt to accelerate foreign investment and endorse exports from India and recognizing the need of a global platform to expose the domestic firms and producers to the competitive world market. The announcement of formulating a Special Economic Zones policy in India was made by the government in April 2000 and was anticipated to be an overseas province for trade purposes, commercial operations, duties and taxes.

SEZs when equipped are anticipated to provide premiere infrastructure services and sustenance services, besides permitting for the tariff free import of merchandize and raw materials. Furthermore, attractive financial subsidiaries and trouble-free custom tariffs, banking and other

methods are provided in such business zones. Establishing SEZs is also recognized as communications development methods.

Indian Special Economic Zones - Salient features

Mentioned below are some of the salient features of Indian Special Economic Zones:

Indian SEZs are developed by government, private and joint sector, unlike its international counterparts where zones are chiefly maintained by their respective governments. This provides equal prospects to both Indian and global players.

Government has allocated a least favorable area of 1,000 hectares for greenfield SEZs. Although, there are no limitation in context of favorable area in constructing sector specific SEZs.

100% of Foreign Direct Investment is allowed for all endowments in Special Economic Zones, apart from activities cataloged under the unconstructive record.

SEZ divisions are obligatory to be encouraging net foreign exchange yielders and are not entitle to any least amount of value addition guidelines or export responsibilities.

Commodity surge from Domestic Tariff Area (DTA) into a SEZ is recognized as exports and commodity surge into DTA from SEZ are recognized as imports.

Indian Special Economic Zones - Benefits

Besides offering high end infrastructure and availability to a large skilled workforce, SEZ also offers attractive incentives and advantages to firms and developers. Mentioned below are some of the benefits of Indian Special Economic Zones:

Full Income tax exemption for a period of 5 years and an extra 50% tax relief for additional two years.

Manufacturing industry is allowed an FDI influx of 100% via automatic channels excluding few industries.

Services to establish off-shore banking divisions in SEZs Service Tax and Central Sales Tax exemption External commercial lending of upto US$500 million is allowed for SEZ divisions in a year

sans any maturity limitations via certified banking networks. No import authorization obligations. Services to sustain foreign exchange proof of payments of upto 100% in Exchange Earners'

Foreign Currency Account. SEZ franchisees are allowed100% FDI in offering customary telephone facilities in the areas. No limitation of foreign endowments for small scale industry reticent products. Tax relief from sectoral authorization obligations for goods reticent for SSI industry Tax relief from custom tariff on import of merchandize, raw products, spare parts etc Tax relief from Central Excise tariff on acquirement of merchandize, raw products, spare

parts etc from the local market No regular assessments by Customs for export and import freight.

Capacity to comprehend and repatriate export advances within a year. Revenues permitted to be repatriated sans any dividend assessment needs Authorization for Employment prospects on behalf of local exporters for direct export. Authorization for off-shoring of local and global players. This service is accessible to jewelry

sector also.

Indian Special Economic Zones - Organizational Set-up

SEZs are controlled by a three tier Organizational Set-up described as under:

Supreme controlling body in the Department is known as The Board of Approval At district level, The Unit Approval Committee tackles with SEZs development and other

associated issues Every district is led by a Development Commissioner, who also controls the Unit Approval

Committee.

Various Special Economic Zones in India

Mentioned below is the list of some of the special economic zones in India:

Special Economic Zones Contact Details

SEEPZ Special Economic Zone Development Commissioner,SEEPZ, Andheri (East) Mumbai-400096Tel: 91-22-28290856, 28291388,28290046, 28292147,28292144Fax: 91-22-28291385,22829175E-mail: [email protected]: www.seepz.com

Kandla Special Economic Zone Development CommissionerKSEZ,Gandhidham, KachchhTel: 91-2836-252194, 252273, 252194,252475, 253300,252281Fax: 91-2836-252250,E-mail: [email protected] Site: http://www.kasez.com

Cochin Special Economic Zone Development Commissioner,CSEZ,Kakkanad, Cochin - 682030Tel: 91-484-2413222, 2413235,2413111, 2413234Fax: 91-484-2413074E-mail: [email protected]

Web Site: http://www.csez.com

Madras Special Economic Zone Development CommissionerMEPZ Special Economic Zone,National Highway 45,Tambaram,Chennai-600045 MEPZ CHENNAITel:91-44-22628220, 22628230, 22628233Fax: 91-44-2628218Email : [email protected] : http://www.mepz.com

Visakhapatnam Special Economic Zone Development CommissionerVSEZ,Duvvada,Visakhapatnam, 530046Tel: 91-891-2754577, 2587555,Fax: 91-891-2587352E-mail: [email protected] : http://www.vepz.com

Noida Export Processing Zone Development CommissionerNSEZ, Noida Dadri Road, Phase-II,Noida District, Gautam BudhNagar-201305 (U.P.)Tel: from Delhi95-120-2562315, 2567274, 2567270-73From outside Delhi-91-120-2567270-3Fax: 91-120-2562314, 91-2567276Email: [email protected]: http://www.nepz.org

Falta Special Economic Zone Development CommissionerFSEZ, M.S.O Building,4th Floor, Nizam Palace,Kolkata-700020Tel: 91-33-22472263,22477923, 22404092Fax: 91-33-22477923Email: [email protected]: http://www.fepz.com

Manikanchan, Salt Lake SEZ West Bengal Industrial DevelopmentCorporation Ltd.,5,Council House Street,Kolkata-700001Tel:91-33-22486583,

22101536/62/63/64/65Fax: 91-33-2248-3737E-mail: [email protected]

Jaipur Special Economic Zone Chairman cum Managing DirectorRajasthan State Industrial Development& Investment Corporation Ltd.,(RIICO)Udyog Bhawan, Tilak MargJaipur-302005 Tel:91-141-2227751,5113201Fax: 91-141-5104804 E-mail: [email protected]: http://www.riico.com

Salt Lake Electronic City-SEZ, Kolkata M/s. WIPRO Ltd., Wipro Infotech,Thapar House, 124,Janpath, New Delhi-110011.Tel: 91-11-23366997Fax 91-11-23362145

Mahindra City-SEZ M/s. Mahindra Industrial Park Ltd.Arjay Apex Centre, 24,College Road,Chennai-600 006Tel: 91-44-2821 2893 / 2894,Fax 91-44-2821 2895E-mail: [email protected]:www.mahindraworldcity.com

Surat Special Economic Zone Development Commissioner,Surat Special Economic ZoneDiamond Park,SachinSurat-394230Tel: 91-261-2372733, 2372734E-mail: [email protected]: http://www.sursez.com

Indore Special Economic Zone 3/54, Press Complex, Free Press Home,H.B. Road, Indore-452008Tel: 91-731-257229Email - [email protected]: http://www.sezindore.com

Advantages of SEZ Units in IndiaThe main Advantages of SEZ Units in India can be summarized as promotion of industrialization and economic growth through sustainable development. The main policy statement of the first Special Economic Zone policy statement states that these SEZ units of India shall be offered tax rebates, fiscal incentives and lands at subsidized rates and these are the primary Advantages of SEZ Units in India. The implementation of the first drafted Special Economic Zone policy took place from the end of the year 2000.The first policy statement for the development of Special Economic Zones in India was drafted as a five-year project, starting from 1.11.2000 to 09.02.2006. Further, the first policy statement of the Indian Special Economic Zones were amended to accommodate and compliment the growth attained.

The main objectives of setting up of Special Economic Zones in India are as follows -

Generation of additional economic activity Promotion of exports of goods and services Promotion of investment from domestic and foreign sources Creation of employment Development of infrastructure facilities Simplified procedures for development, operation, and maintenance of the Special

Economic Zones and for setting up units and conducting business Single window clearance for setting up of a SEZ and an unit in SEZ Single window clearance on matters relating to Central as well as State Governments Easy and simplified compliance procedures and documentations with stress on self

certification

Some of the key Advantages of SEZ Units in India is mentioned as below -

10-year tax holiday in a block of the first 20 years Exemption from duties on all imports for project development Exemption from excise / VAT on domestic sourcing of capital goods for project

development No foreign ownership restrictions in developing zone infrastructure and no restrictions

on repatriation Freedom to develop township in to the SEZ with residential areas, markets, play

grounds, clubs and recreation centers without any restrictions on foreign ownership Income tax holidays on business income Exemption from import duty, VAT and other Taxes 10% FDI allowed through the automatic route for all manufacturing activities Procedural ease and efficiency for speedy approvals, clearances and customs

procedures and dispute resolution Simplification of procedures and self-certification in the labor acts Artificial harbor and handling bulk containers made operational through out the year Houses both domestic and international air terminals to facilitate transit, to and fro

from major domestic and international destinations Has host of Public and Private Bank chains to offer financial assistance for business

houses

A vibrant industrial city with abundant supply of skilled manpower, covering the entire spectrum of industrial and business expertise

Well connected with network of public transport, local railways and cabs Pollution free environment with proper drainage and sewage system In-house Customs clearance facilities Easy access to airport and local Railway Station Full authority to provide services such as water, electricity, security, restaurants and

recreational facilities within the zone on purely commercial basis Abundant supply of technically skilled manpower Abundant supply of semi-skilled labor across all industry sectors

Some of the established important Special Economic Zones in India are given as below -

Falta food processing unit, West Bengal Salt Lake Electronic City, West Bengal Manikanchan - Gems and jewelry, West Bengal Calcutta Leather Complex, West Bengal Karnataka Biotechnology and Information Technology Services - SEZ on

biotechnology sector in Bangalore's Electronics City, over an area of 43 acres Shree Renuka Sugars Limited - SEZ on sugarcane processing complex covering 100

hectares, comprising a sugar plant, power station and distillery, at Burlatti in Belgaum district

Ittina Properties Private Limited and three other - SEZs in IT sector, covering electronics, hardware and software sectors in

Bangalore, over an area of 15.732 hectares Divyasree Infrastructure - SEZ in the IT/ITES sector over an area of 20.234 hectares

in Bellandur Amani Kane near Bangalore Chaitanaya Infrastructure Private Limited - SEZ in the IT/ITES sector in Bangalore

over an area of 20.24 hectares Bagmane Developers Private Limited - SEZ in the IT/ITES sector in Raman Nagar in

Bangalore North over an area of 15.5 hectares Shipco Infrastructure Private Limited - Free Trade Ware Housing Zone in Karnataka

over an area of 120 hectares Hinduja Investments Private Limited - SEZ in the textile and apparel sector at

Doddamannugudde in Bangalore Rural district, over an area of 100 hectares Wipro Infotech - SEZ on IT / ITES at Electronics City, Sarajpur Bangalore Hewlett Packard India Software Operation Pvt. Ltd. - SEZ on IT Food processing and related SEZ services in Hassan, over an area of 157.91 hectares. SEZs on pharmaceuticals, biotechnology and chemical sectors in Hassan, covering of

281.21 hectares. SEEPZ - Andheri (East), Mumbai Khopata - Multi-product, Mumbai Navi Mumbai - Multi-product, Mumbai

The key projections for the financial year 2007 - 2008 are as follows -

Projected exports from all SEZs for 2007-08 is `67300 crore Presently, 1016 units are in operation and providing direct employment to over 1.79

lakh people of which around 40% are women

Private investment by entrepreneurs before the SEZ Act was around `4400 crore. In the 63 notified SEZs which have come up after 10th February 06, investment of `13, 435 crore has already been made in less than a year

Have created direct employment for around 18, 457 people

SEZ and Export PromotionThe SEZ and Export Promotion facilitated the growth of the Indian Special Economic Zones. The creation of special Economic Zones in India in the 2000 give many dividends as projected during their inception. The main factor for the under performance of these Special Economic Zones were poor export policy of India, which was loaded with huge taxes and duties. The Government of India eased the export policy of India to facilitate easy growth of SEZ and Export Promotion of Indian goods across international destinations. This created a congenial environment for the development of a special kind of units within the designated Special Economic Zones. These specialized export oriented units were called Export Oriented Units or EOU and they were created to increase the overall export potential of these SEZ. Further, these EOU were devised in such a way, so that they can focus specifically on the growth of Indian exports.

Further, their recipient also facilitates these units to sell their products in the domestic markets in case of rejection by them, after payment of designated tax and within the direct tariff area. Only some exclusive commodities are barred from such selling process. Thereafter, the development of SEZ and Export Promotion could be witnessed simultaneously. In other words these Export Oriented Units shared a reciprocal dependency with the Special Economic Zone of India.

The provisions of Indian export policy, which facilitated growth of SEZ and Export Promotion of Indian goods, are as follows -

Exemption on duties on Indian capital goods and inputs are offered as per the requirements of the approved business activity.

Taxes are either exempted or waived and even reimbursed in case they are paid in advanced to the concerned authority.

Duty-free imports of spares, raw materials, capital goods, and consumables are offered as per the requirements of the approved business activity.

Preferential treatment of these units to the Indian market for easy dissemination of their products and / or service.

Rejected commodities (specifically barred commodities cannot be sold) within an overall limit of 50% may be sold in the domestic tariff area (DTA) on payment of respective duties as applicable after proper notification to the Indian customs authorities. And such sales of commodities in the domestic tariff area shall be counted against DTA sale entitlement and sale of such rejected commodities (up to 5% of FOB value of exports) shall not be subject to achievement of NFE.

All EOU / EHTP / STP / BTP units may sell their finished products or services (excluding pepper and pepper products and marble) Units manufacturing electronics

hardware and software, the NFE and direct tariff area (DTA) sale entitlement shall be judged separately for its hardware and software products.

Facilitated to retain 100 % in foreign currency in EEFC account of the said trader.

Tax waiver of dividends and profits for repatriates, without any application of repatriation tax.

Total tax exemption on corporate incomes as per the provisions of Section 10 A and 10 B of the Indian Income Tax Act.

Easy and automatic acceptance system for use of existing trademarks, brand names and technological know-how .

Facilitated with out-sourcing of subcontract capacities for export production against orders secured by other SME units.

All SEZ units, (excluding gems and jewelry units) may sell goods up to 50% of FOB value of exports subject to fulfillment of positive NFE on payment of concessional duties. Within the entitlement of domestic tariff area (DTA) sale, the unit may sell in DTA its products similar to the goods, which are exported or expected to be exported from the units.

Facilitated with out-sourcing of subcontract of production or part of production process to Indian or any foreign units.

Sale to direct tariff agreement is subject to mandatory requirement of registration for pharmaceutical products and inclusive of bulk drugs.

For Software services units, the sale in the DTA in any mode, including on line data communication shall be permitted up to 50% of FOB value of exports and / or 50% of foreign exchange earned through exports of such services, where the payment of such services offered to its overseas clients, is received in foreign exchange.

SEZ units associated with manufacturing gems and jewelry may sell up to 10% of FOB value of exports of the preceding year in direct trade agreement and subject to fulfillment of positive NFE. Further, in case of sale of plain jewelry, the recipient of such trade shall pay concessional rate of duty as applicable. Furthermore, in case of studded jewelry, duty shall be payable as recommended and amended from time to time.

Total exemption of duties / taxes on scrap or waste or remnants in case the said crap or waste or remnants are destroyed as per the approval of the customs authorities of India.

If the end products is a by-product and it is included in the LOP, then it may also be sold in the direct tariff area, subject to achievement of positive NFE on payment of applicable duties within the provisions of such laws. The sale of such by-products by units those are not entitled to direct tariff area sales.

Facilitated with out-sourcing of subcontract capacities for export production against orders secured by other units.

First SEZ Policy of IndiaThe First SEZ Policy of India came in to existence because the economic reforms promulgated and implemented in the early 1990s did not resulted in the overall growth of the Indian economy. The First SEZ Policy of India was drafted to act as a catalyst to fuel the economic earnest in the early 1990s. The economic reforms of 1990s did not produce desired results, especially the Indian manufacturing sector witnessed slump in the second-half of the decade. Bottlenecks like red tape, lengthy administrative procedures, rigid labor laws and poor physical infrastructural facilities had detrimental effects on the flow of Foreign Direct Investments (FDI). Further, the Indian markets were not mature enough to embrace Foreign Institutional Investors (FIIs) in the system. Furthermore, the legal framework of Indian economy was not binding enough to prevent overexploitation of Indian markets by the foreign investors. Thus, there was no congenial environment for investments in India in spite of implementation of liberal economic policy by the Government of India.

To negate these problems, the Government of India decided to reestablish its old policy of developing Export Processing Zones (EPZs). The previously designed Export Processing Zones (EPZs) of India could not provide the expected economic returns due to the lack of Government of India commitment towards the formulated schemes, irrelevant reforms, poor policy, poor land selection, failure to provide world class physical infrastructure, meager fiscal incentives and poor management. The Government of India devised a new and modern version of Export Processing Zones (EPZs). The new amended version of these Export Processing Zones (EPZs) is in fact Special Economic Zones (SEZs). Under the new Government of India policy, all existing Export Processing Zones were converted into Special Economic Zones in the year 2000. The basic difference between a Special Economic Zone and Export Processing Zone is that while the former is an integrated and fully equipped township while an Export Processing Zone is a dedicated area for intensive industrial activity.

The Special Economic Zone policies are well complimented by the provisions of the Acts and Rules of Special Economic Zone. The SEZ Rules provide pre-defined minimum land requirements for different type of Special Economic Zones. To create an investor friendly environment, the Government of India formulated a stable Special Economic Zone policy regime and it is devised with a view to add stability to these SEZ units of India. A number of meetings were held across India for the formulation of - 'The Special Economic Zones Act, 2005', which was subsequently passed by Parliament in May 2005. The SEZ Act, 2005 and SEZ Rules became effective on and from 10th February 2006. The SEZ Act 2005 defines the key role for the State Governments in Export Promotion and creation of infrastructure. A Single Window SEZ approval mechanism has been facilitated through a 19 member inter-ministerial SEZ Board of Approval or BOA. The respective State Governments or Union Territories Administration duly recommended these applications. This Board of Approval considers any application for the establishment of a Special Economic Zone. All decisions of the Board of Approvals are with consensus of all the concerned members. The SEZ Rules provide for different minimum land requirement for different class of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created.

The main objectives of the First SEZ Policy of India are as follows -

Generation of additional economic activity across all the states Promotion of exports of goods and services across all Indian sates according to their

indigenous capabilities Promotion of investment from domestic and foreign sources Creation of employment opportunities across India Development of world class infrastructural facilities in these units Simplified procedures for development, operation, and maintenance of the Special

Economic Zones and for setting up units and conducting such business activities Single window clearance cell for the establishment of Special Economic Zone Single window clearance cell within each and every Special Economic Zones Single window clearance cell relating to formal requirements of Central as well as all

State Governments Easy and simplified compliance procedures and documentations with stress on self

certification

The salient features of the First SEZ Policy of India are as follows -

Exemption from duties on all imports for project development Exemption from excise / VAT on domestic sourcing of capital goods for project

development Freedom to develop township in to the SEZ with residential areas, markets, play

grounds, clubs and recreation centers without any restrictions on foreign ownership Income tax holidays on business income Exemption from import duty, VAT and other Taxes 10% FDI allowed through the automatic route for all manufacturing activities Procedural ease and efficiency for speedy approvals, clearances and customs

procedures and dispute resolution Simplification of procedures and self-certification in the labor acts Artificial harbor and handling bulk containers made operational through out the year Houses both domestic and international air terminals to facilitate transit, to and fro

from major domestic and international destinations Has host of Public and Private Bank chains to offer financial assistance for business

houses A vibrant industrial city with abundant supply of skilled manpower, covering the

entire spectrum of industrial and business expertise Well connected with network of public transport, local railways and cabs Pollution free environment with proper drainage and sewage system In-house Customs clearance facilities Abundant supply of technically skilled manpower Abundant supply of semi-skilled labor across all industry vertical Easy access to airport and local Railway Station 10-year tax holiday in a block of the first 20 years Full authority to provide services such as water, electricity, security, restaurants and

recreational facilities within the zone on purely commercial basis No foreign ownership restrictions in developing zone infrastructure and no restrictions

on repatriation

History of SEZs in India

The History of SEZs in India suggests that the seeds of the basic concept of Special Economic Zone (SEZ) were sown in the mid sixties. Further, the History of SEZs in India suggests that the basic model of the present day Indian Special Economic Zone was structured with the establishment of the first Export Processing Zone (EPZ) at Kandla in the year 1965. Several other Export Processing Zones were set up at various parts of India in the subsequent years. The lack of good Government of India economic policy and inefficient management soon became the detrimental factors for the success of these Export Processing Zones. Thus, the performance of these Export Processing Zones of India fell short of expectations.

The modern day Special Economic Zone came in to existence because the economic reforms incorporated in the early 1990s did not resulted in the overall growth of the Indian economy. The SEZ policy of India was devised to act as a catalyst to promote the economic growth attained in the early 1990. The economic reforms incorporated during the 1990s did not produce the desired results. The Indian manufacturing sector witnessed a sudden dip in the overall growth of the industry, during the second-half of 1990s. The History of SEZs in India suggests that red tape, lengthy administrative procedures, rigid labor laws and poor physical infrastructural facilities were the main cause of deterioration of Foreign Direct Investments (FDI) inflow in to India. Further, the Indian markets were not mature enough to facilitate easy entry of Foreign Institutional Investors (FIIs) in to the Indian economic system. Furthermore, the legal framework of Indian economy was not strong enough to prevent misuse of Indian markets by the foreign investors. Thus, the lack of investor friendly environment in India prevented growth of Indian industry, in spite of implementation of liberal economic policy by the central government. This resulted in the formation of a much larger and more efficient form of their predecessors with world-class infrastructural facility.

The History of SEZs in India suggests that the present day Special Economic Zone policies of India are well complimented by the provisions of the Acts and Rules of Special Economic Zone. A number of meetings were held across India for the formulation of - 'The Special Economic Zones Act, 2005', which was subsequently passed by Parliament in May 2005. The SEZ Act, 2005 and SEZ Rules became effective on and from 10th February 2006. The SEZ Act 2005 defines the key role for the State Governments in Export Promotion and creation of infrastructural facilities. A Single Window SEZ approval mechanism has been facilitated through a 19 member inter-ministerial SEZ Board of Approval or BOA. And the decision of the SEZ Board of Approval is binding and final.

Some of the important SEZ in India are as follows -

Karnataka Biotechnology and Information Technology Services - SEZ on biotechnology sector in Bangalore's Electronics City, over an area of 43 acres

Shree Renuka Sugars Limited - SEZ on sugarcane processing complex covering 100 hectares, comprising a sugar plant, power station and distillery, at Burlatti in Belgaum district

Ittina Properties Private Limited and three other - SEZs in IT sector, covering electronics, hardware and software sectors in Bangalore, over an area of 15.732 hectares

Wipro Infotech - SEZ on IT / ITES at Electronics City, Sarajpur Bangalore Hewlett Packard India Software Operation Pvt. Ltd. - SEZ on IT Food processing and related SEZ services in Hassan, over an area of 157.91 hectares

SEZs on pharmaceuticals, biotechnology and chemical sectors in Hassan, covering of 281.21 hectares

SEEPZ - Andheri (East), Mumbai Khopata - Multi-product, Mumbai Navi Mumbai - Multi-product, Mumbai Salt Lake Electronic City, West Bengal Manikanchan - Jems and jewelery, West Bengal Calcutta Leather Complex, West Bengal Falta food processing unit, West Bengal

SEZs and Land AcquisitionSEZs and Land Acquisition are interconnected for in the setting up of SEZs huge amounts of land are required. Land Acquisition and SEZs have picked up speed in India since the Indian government has encouraged the setting up of SEZs in the country.

Special Economic Zone means an area of land that has been demarcated and is treated as a foreign territory for various purposes such as tariffs, trade, and duties. SEZs in India enjoy exemptions from income tax, service tax, sales tax, and customs duties. The government of India has made several policies with regard to SEZs in the country. The Indian government is encouraging the setting up of SEZs in the country for they help in the economic and industrial growth of a nation. According to the government of India's policy a SEZ in the country has to be built on at least 1 thousand hectares or more of land. And so Land Acquisition on a massive scale is taking place in India so that more and more SEZs can be set up in the country.

SEZs and Land Acquisition is taking place mainly in agricultural lands and the central and state governments are acquiring the land from the farmers. Across India, the total amount of land, which will be acquired, is around 150,000 hectares and this amount of land is capable of producing around 1 million tons of agricultural produce. The various advantages of SEZs and Land Acquisition in India are that it has helped to bring in huge amounts of foreign currency into the country, increased the number of jobs for the people of the country, and has also helped to bring in highly technologically advanced machines into the country.

The various disadvantages of SEZs and Land Acquisition in India are that it is estimated that more than 10 lakh people who are dependent upon agricultural lands will be evicted from their lands, it is estimated that the farming families will have to face loss of around Rs.212 crores each year in total income, and it will also lead to putting the food security of India at risk. SEZs and Land Acquisition in India has now resulted in dissent, uproar, and opposition from the farmers, for their livelihood has been put at stake.

Recently due to Land Acquisition in Atchutapuram, which is near Visakhapatnam, the farmers have declared war against the setting up of SEZ in their lands. The land compensation money that the state government is giving is very less in comparison to the actual market rate of the land and this has angered the farmers even more. Recently, at

Nandigram village, which is in West Bengal, the farmers have also protested against the setting up of SEZ in their lands.

SEZs and Land Acquisition has been taking place in India in a very fast pace over the last few years. The government of India must make sure that Land Acquisition and SEZs must prove beneficial for the people of the country and not harmful.

Pros and Cons of SEZ PolicyThe pros and cons of SEZ policy of India identify the developmental area of Indian industries, especially the fast growing sectors.

The pros and cons of SEZ policy as implemented from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy, offers fiscal incentives through the provisions of relevant Special Economic Zones (SEZ) Acts and Rules. The Indian Special Economic Zones policy intends to make SEZs a powerhouse for economic growth. These SEZs are supported by world class infrastructure coupled with attractive fiscal incentives and tax rebates, both at the Central and the State level. Further the Indian Special Economic Zones policy attracts minimum possible regulations.

The main pros and cons of SEZ policy of India are described as follows -

Generation of additional economic activity Promotion of exports of goods and services Promotion of investment from domestic and foreign sources Creation of employment Development of infrastructure facilities Simplified procedures for development, operation, and maintenance of the Special

Economic Zones and for setting up units and conducting business Single window clearance for setting up of a SEZ and an unit in SEZ Single Window clearance on matters relating to Central as well as State Governments Easy and simplified compliance procedures and documentations with stress on self

certification

The SEZ Rules provide different minimum land requirements for different types of Special Economic Zones. To create an investor friendly environment, the Government of India formulated a stable SEZ policy regime and this is done with a view to impart stability to these SEZ units. A number of meetings across the country led to the formulation of - 'The Special Economic Zones Act, 2005', which was subsequently passed by Parliament in May, 2005. The SEZ Act, 2005 and SEZ Rules became effective on and from 10th February, 2006. The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval. The applications duly recommended by the respective State Governments/Union Territories Administration are considered by this board, periodically. All decisions of the Board of approvals are with consensus. The SEZ Rules provide for different minimum land requirement for different class

of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created.

The main features of Indian Special Economic Zones are as follows -

Modern harbor - Artificial harbor and handling bulk containers made operational through out the year

Airport - Houses both domestic and international air terminals to facilitate transit, to and from major domestic and international destinations

Financial Institutions - Has host of Public and Private Bank chains to offer financial assistance for business houses

A vibrant industrial city with abundant supply of skilled manpower, covering the entire spectrum of industrial and business expertise

Other Advantages - Well connected with network of public transport, local railways and cabs

Pollution free environment with proper drainage and sewage system In-house Customs clearance facilities Uninterrupted power supply Abundant supply of technically skilled manpower Abundant supply of semi-skilled labor across all industry vertical Easy access to airport and local Railway Station

The successful implementation of Indian SEZ Policy is evident from the facts which are enumerated as follows -

Projected exports from all SEZs for 2007-08 is ` 67300 crore Presently, 1016 units are in operation and providing direct employment to over 1.79

lakh people of which around 40% are women Private investment by entrepreneurs before the SEZ Act was around ` 4400 crore. In

the 63 notified SEZs which have come up after 10th February 06, investment of ` 13,435 crore has already been made in less than a

year Have created direct employment for around 18,457 people

Procedure of Setting Up SEZ Unit in IndiaThe Procedure of Setting Up SEZ Unit in India has been simplified for the Indian government wants the number of SEZ to increase in the country. The government of India has simplified method of setting up SEZ Unit in India.

Special Economic Zone means an area that has been specified as an enclave that is duty free and is treated as a foreign territory for various purposes such as tariffs, trade operations, and duties. SEZ help in the economic and industrial growth of the state and this is the reason that the government of India has made it easy to set up SEZs in India. In India, SEZs can be set up by the state government, or its various agencies or any public, private, joint sector. Even foreign companies can set up SEZs in India.

Procedure of Setting Up SEZ Unit in India includes filling up of an application with the name, address, and status of the promoter. Along with the application form, the project report which has details such as the proposed SEZ's location, the details of infrastructure that already exists, details of infrastructure that will be established, and the total area of the proposed SEZ. The project report of the proposed SEZ that will be submitted along with the application form should also contain investment details, which would include the financing mode and the project's viability. Also it should contain details as to whether the proposed SEZ would be a multi- product or specific industries zone and foreign equity details. The application along with the project report for the setting up of SEZ Unit is submitted to the Chief Secretary of the State.

The Steps of Setting Up SEZ Unit in India are that after the application has been submitted, the state government then forwards the application to the Department of Commerce, Indian government. Along with the application form, the state government has to give their commitment that the area where the proposed SEZ will be set up is free from all kinds of environmental restrictions, that it would provide electricity, water, and various other services when required, and that it would allow transmission, generation, and power distribution inside the SEZ. Further the state government has to give the commitment that it would exempt the proposed SEZ from sales tax, turnover tax, and mandi tax on the goods that are supplied from the area of Domestic Tariff to the units in the SEZ. Also the government of the state has to give the commitment that it would declare the units of the SEZ as Public Utility Service and that the system of single point clearance and minimum inspection would be provided to the SEZ.

Procedure of Setting Up SEZ Unit in India are that once the application has been forwarded that incorporates the state government's commitments then it will be considered by the Department of Commerce's Inter- Ministerial Committee. When the committee accepts the proposal, a permission letter is issued to the applicant of the proposed SEZ.

Procedure of Setting Up SEZ Unit in India, as seen is very simple. The government of India must continue to simplify the Method of Setting Up SEZ Unit in India. For, this will help in increasing the number of SEZ in the country, which in its turn will lead to the growth and prosperity of India.

SEZ Rules 2006The main provisions of the Indian SEZ Rules 2006 can be summarized as promotion of industrialization and economic growth through sustainable development of Indian industries. The main essence of the Indian SEZ Rules 2006, states that these Special Economic Zones of India shall be offered tax rebates, fiscal incentives and lands at subsidized rates. The implementation of the first drafted Special Economic Zone policy took place from the end of

the year 2000 and the subsequent years witnessed a paradigm development and amendment of the basic Special Economic Zone Rules of India. The first draft of Special Economic Zone Rule for the development of Special Economic Zones in India was drafted as a five-year project, starting from 1.11.2000 to 09.02.2006. Further, the first draft of Special Economic Zone Rule of India was amended to accommodate and compliment the economic growth attained by India.

The basic provisions of the SEZ Rules 2006 can be summarized as follows -

Creation of additional economic activity across all such designated zones Promotion of exports of goods and services across all such designated zones Promotion of investment from domestic and foreign sources Creation of employment at competitive rate Development of infrastructure facilities to compliment the growth of SEZ units Promulgation of simplified procedures for development, operation, and maintenance

of the Special Economic Zones and for setting up units and conducting business Single window clearance booth for setting up of a SEZ and within all such Special

Economic Zone unit Single window clearance on matters relating to Central as well as State Governments

approval and certification process Facilitation of easy and simplified compliance procedures and documentations with

stress on self certification process

Some of the key provisions of the Indian SEZ Rules 2006 are mentioned as below -

Should be exempted from duties on all imports for project development Should be exempted from excise / VAT on domestic sourcing of capital goods for

project development Should be offered 10-year tax holiday in a block of the first 20 years No foreign ownership restrictions in developing zone infrastructure and no restrictions

on repatriation Freedom to develop township in to the SEZ with residential areas, markets, play

grounds, clubs and recreation centers without any restrictions on foreign ownership Should be exempted from taxation on business income Should be exempted from import duty, VAT and other taxes 10% FDI allowed through the automatic route for all manufacturing activities Procedural ease and efficiency for speedy approvals, clearances and customs

procedures and dispute resolution Simplification of procedures and self-certification in the labor acts Artificial harbor and handling bulk containers made operational through out the year To be equipped with air ports for easy transit of men and goods To be equipped with host of Public and Private Bank chains to offer financial

assistance for business houses Should be a vibrant industrial city with abundant supply of skilled manpower,

covering the entire spectrum of industrial and business expertise Should be well connected with network of public transport, local railways and cabs To encourage pollution free environment with proper drainage and sewage system To house in-house customs clearance facilities Should have easy access to airport and local railway station

Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within the zone on purely commercial basis

Should have abundant supply of technically skilled manpower Should have abundant supply of semi-skilled labor across all industry sectors

Special Economic Zones and Foreign CapitalThe role of Special Economic Zones and Foreign Capital for the overall growth of the Indian economy is significant. Foreign capital still continues and will continue to play an important role in the over all development of the Indian economy. India can be a manufacturing hub for industries like textiles, automobiles, steel, metals, petroleum products, hardware, fertilizers, chemicals, agri-foods etc.

catering to international market requirements. The financial year 2005, witnessed an inflow of Foreign Direct Investment (FDI) to the tune of US $ 4 billion in to the Indian markets. Further, the subsequent years also registered quantum increase in the growth rate of Indian Special Economic Zones and Foreign Capital investments, made into the Indian markets. The Ministry of Commerce, Government of India estimates that the cumulative investments in the special Economic Zones of India would attract an investment of Rs.1 trillion and generate employment for 5, 00,000 people.

The main factors that facilitate the growth of Special Economic Zones and Foreign Capital infusions into the Indian markets are as follows -

Exemption from duties on all imports for project development 10-year tax holiday in a block of the first 20 years 10% FDI allowed through the automatic route for all manufacturing activities Exemption from excise or Value Added Tax on domestic sourcing of capital goods

for project development Exemption from import duty, Value Added Tax and other taxes Freedom to develop township in to the SEZ with residential areas, markets, play

grounds, clubs and recreation centers without any restrictions on foreign ownership Income tax holidays on business income In-house Customs clearance facilities Procedural ease and efficiency for speedy approvals, clearances and customs

procedures and dispute resolution Simplification of procedures and self-certification in the labor acts A vibrant industrial city with abundant supply of skilled manpower, covering the

entire spectrum of industrial and business expertise Well connected with network of public transport, local railways and cabs Pollution free environment with proper drainage and sewage system Abundant supply of technically skilled manpower Abundant supply of semi-skilled labor across all industry vertical Easy access to airport and local Railway Station Artificial harbor and handling bulk containers made operational through out the year Houses both domestic and international air terminals to facilitate transit, to and fro

from major domestic and international destinations Has host of Public and Private Bank chains to offer financial assistance for business

houses

Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within the zone on purely commercial basis

No foreign ownership restrictions in developing zone infrastructure and no restrictions on repatriation

Development of world class infrastructural facilities in these units Simplified procedures for development, operation, and maintenance of the Special

Economic Zones and for setting up units and conducting such business activities Single window clearance cell for the establishment of Special Economic Zone Single window clearance cell within each and every Special Economic Zones Single window clearance cell relating to formal requirements of Central as well as all

State Governments Easy and simplified compliance procedures and documentations High importance is associated with the process of certification from international

authorities

Functional Special Economic Zones and Foreign Capital infusion status are as follows -

Telecommunication company Nokia commenced its operation in Tamil Nadu with investment of US$ 100 million generating direct employment to 2800 personnel and indirect employment to 10000 workers

Quark City has been established in Chandigarh and attracted investment of US$ 0.5 billion and FDI of US$ 35000 by the end of May 2007

Flextronix in Tamil Nadu started its operation with investment worth US $100 million and generated employment for 3000 workers and few are under going training

Motorola and Foxconn, these two units has been set up with investment of US$ 200 million and it generated employment for 5000 workers Apache SEZ started to operate with an initial investment of US$ 50 million and created job opportunities for 25,000 workers

Brandix Apparel in Andhra Pradesh started its operation in March 2007 with an initial investment of US$ 100 million and 26000 personnel

Special Economic Zones and Tax IncentivesThe Special Economic Zones and Tax Incentives offered as per the SEZ policy of India are indeed alluring for the investors, both domestic and foreign investors. The Special Economic Zones and Tax Incentives offered covers areas like state and local taxes, levies, stamp duty and other duties.

The Special Economic Zones and tax incentives as offered in India are as follows -

Local sales tax / value added tax laws:

Section 50 of the Special Economic Zone Act of India, empowers all the concerned State Governments to issue notifications allowing exemptions to developer or entrepreneur on state taxes, levies and duties.

Rule 5(5) of Special Economic Zone of India provides that before recommendation of any proposal for establishment of a Special Economic Zone, the State Government should offer

various incentives, including exemption from state and local taxes, levies, stamp duty, other duties and taxes levied by local bodies on goods required for operations of such authorized unit. Further, the goods sold by such unit in the domestic tariff area (DTA) should also be extended all such exemptions support, except the goods procured from domestic tariff area should be sold as it is

Therefore, the Special Economic Zone Act and the Rule of India involves all the state governments with clear indication of incentives offered as per the respective state policy.

Central Sales Tax Act, as per 1956 draft:

Section 8 (6) of the Central Sales Tax Act of India exempts from Central Sales Tax all inter-state sale of goods made by a dealer to a registered dealer for the purpose of setting up, operation, manufacture, production, processing, assembling, trading, maintenance, repairing, reconditioning, re-engineering, packaging or for use as packing material or packing accessories in any Special Economic Zone unit for development, operation and maintenance of SEZ developer.

The above-mentioned benefit are offered if such registered dealer is authorized to establish such an unit within the designated Special Economic Zone or to develop and maintain such Special Economic Zone by the body authorized by the Central Government to act for and on their behalf.

Income Tax:

All the Special Economic Zones function under the guardianship and the jurisdiction of the Commerce Ministry, Government of India. The relevant or applicable exemptions and incentives as offered for the operation of the Special Economic Zones are provided in the Special Economic Zone Act of India. These exemptions on income taxes are detailed in the Second Schedule to the SEZ Act. Section 27 of the SEZ Act provides -

Provisions of Income tax Act; As in force for time being; Shall apply to developer or entrepreneur; For carrying on authorized operations in an SEZ or Unit; Subject to modifications specified in Second Schedule;

The relief provided by the Second Schedule of the Special Economic Zone Act of India is as follows -

Section 10[15][viii]: Interest on deposits in an offshore bank on or after 1st April 2005 of a Non-resident or Not Ordinarily Resident is exempted form paying tax.

Section 10[23][g]: Dividends or interests or long-term capital gains earned from any infrastructure based fund or infrastructure based capital company or cooperative bank from investments made on shares or long-term finance in any enterprise or undertaking those are dedicatedly involved in the business of development of Special Economic Zone.

Section 54GA: The transfer of assets in cases of shifting of any industry from an urban area to any Special Economic Zone is exempted from tax on capital gains.

Section 80LA: 100% tax deduction is offered for the first 5 years & 50% deduction for the next 5 years in respect of income from International Financial Services Center or an offshore banking unit in a Special Economic Zone.

Further, such deductions are also offered on income from other business activities, which are referred in Section 6[1] of Indian Banking Regulations Act, with an undertaking located in any designated Special Economic Zone or any other undertaking, which helps in the development and /or operation of any such Special Economic Zone.

Section 115JB(6): The provisions of section 115JB becomes ineffective if the income accrued or arises on or after 1st April 2005 from any business activities carried therein

Features and Facilities of Indian SEZFeatures and Facilities of Indian SEZ is of world-class standards for the government wants to provide the best facilities to the units that are set up in the SEZs in India. Facilities and Features of Indian SEZ have attracted many companies to set up their units in Indian SEZs.

Special Economic Zone means a specified region in a state that has liberal economic laws in comparison to the state's typical economic laws. SEZs help in the economic and industrial growth of a country and this is the reason that the government of India is encouraging the setting up of more and more SEZs in the country. The various beneficial Features and Facilities of Indian SEZ are that the units within the SEZ do not have to have a license for importing goods and they are exempted from paying central excise duty when they procure raw materials, spares and capital goods from the local market.

Further the various positive Facilities and Features of Indian SEZ are that the units within the SEZ are exempted from paying customs duty when they import raw materials, spares, consumables, and capital goods, and 100% exemption from income tax. Also the various Features and Facilities of Indian SEZ are that the units inside the SEZ are allowed 100% foreign direct investment, facility to retain in account EEFC 100% foreign direct investment, and on items that have been reserved for SSI there is no cap on foreign direct investment.

The various Facilities and Features of Indian SEZ are that for the units within the SEZ there are no fixed norms for wastage, the units have complete freedom to hire contract labor or to indulge in subcontracting, and that there would be no regular examination of import and export cargo by customs. Further the various beneficial Features and Facilities of Indian SEZ are that the companies that set up their units in the SEZ are provided with built up space and developed plots, the units can use the duty free goods in a period of 5 years, and support services such as post office, banks, food courts, ATMs, and fire services are provided in the SEZ complex.

Features and Facilities of Indian SEZ that proves beneficial to the units within the SEZ is that they do not require separate documentation for Exim and customs policy, the units performance is monitored by the Development Commissioner, and the supplies that the SEZ receives from the DTA are treated as exports. Also the various positive Features and Facilities of Indian SEZ are that the central sales tax that the units pay on the purchase of domestic products are reimbursed, the units in the SEZ are given a write- off up to 5% on unrealized exports, and exemption from paying excise

duty on the goods that are required for setting up the units in the SEZ.

Features and Facilities of Indian SEZ as seen is such that they would help the units within the SEZ to grow and prosper. In the future also the government of India must continue to provide the best facilities in the SEZs in India.